Page 132 - DCOM510_FINANCIAL_DERIVATIVES

One SIMEX Nikkei 225 Futures Contract
Contract Site
Calls: CNK
Ticker Symbol
5 serial months and 5 quarterly months in the March,
Contract Months
June, September and December cycle
Trading Hours
7.55 am
Singapore
2.15 pm
11.15am

11.15 am
Tokyo
8.55 am
3.15 pm
12.15 am

11.55 pm
London
2.15 am

6.15 am
3.15 am
Chicago Puts: PNK 10.15 am
5.55 pm
8.15 pm
9.15 pm 12.15 am
New York 6.55 pm 9.15 pm
10.15 pm 1.15 am
Trading Hours on last Trading Day Same as above
Unit 8: Application of Options
Minimum Price Five index points (¥2,500) except that fluctuation trades
may occur at a price of (¥300) whether or not such trades
result in the liquidation of positions for both parties to the
trade.
Notes
Strike Price 500 Nikkei index points interval. Strike prices will be
integers divisible by 500 without remainder
Trading Halt There shall be no trading in any options contract when the
Nikkei 225 Stock Index Futures contract is bid or offered:
(1) at its initial daily price limit, or (2) at its expanded daily
price limit, except that the above provisions shall not
apply on an option’s last day of trading.
Option Exercise An option can be exercised by the buyer on any Nikkei 225
business day.
In the absence of contrary instructions delivered to the
Clearing House, an option in the March quarterly cycle
that is in-the-money* will be exercised automatically on
the day of determination of final settlement price.
Similarly, an in-the-money** option that expires in a
month other than those in the March quarterly cycle will
be exercised automatically on the day of termination of
trading.
Last Trading day The day before the second Friday of the contract month.
Expiration The expiration day for options in the March quarterly
cycle (Mar, Jun, Sep, and Dec) will usually be the second
Friday of the contract month. For contract months other
than those in the March quarterly cycle, the options
contract will expire on its last trading day.

Source: Singapore International Monetary Exchange Limited
*An option in the March quarterly cycle is in-the-money if the final settlement price of the underlying
futures contract lies above the strike price in the case of call, or lies below the strike price in the case of a
put.
** An option that expires in a month other than those in the March quarterly cycle is in-the-money if the
settlement price of the underlying futures contract at the termination of trading lies above the strike price
in the case of a call, or lies below the strike price in the case of a put.
8.2.2 Speculation and Hedging with Futures Options
The principles of speculation using futures options are similar to those with other options.
Example: If a speculator believes that the stock index is likely to decline significantly, he
may write naked calls or buy put options. While the former involves pre-determined limited
gain and unlimited risk, the latter involves a pre-determined maximum amount of loss but
possibilities of large gains.
Of course, the more favourable the exercise price, the higher the put premium as well. Like with
options on equity or stock index, hedging can be done with futures options as well. They are
useful particularly to the individual investor who speculates with interest rates or stock index
futures. If an investor buys a S&P CNX Nifty futures contract, he should stand to lose in case the
index falls as his balance in margin account reduces being marked-to-market every day. To
hedge against such potential losses, one could buy put options on S&P CNX Nifty futures.
Similarly, one who is short S&P CNX Nifty futures contract can protect him by buying call
options or writing put options.
Hedging: Have underlying buy puts: Owners of stocks or equity portfolios often experience
discomfort about the overall stock market movement. As an owner of stocks or an equity
portfolio, sometimes one may have a view that stock prices will fall in the near future. At other
times one may witness massive volatility. The union budget is a common and reliable source of

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